‘Footprint Rationalization’: Sears adds to Woes of Canada’s Malls

The industry spirals into turmoil.

After bouts of store closings that started in 2013, Sears Canada has about 95 department stores, 10 outlet stores, and 40 home stores left. Now, according to the Globe and Mail, it will close even more stores.

It’s been tough for brick-and-mortar retailers in Canada. The collapse of the price of oil and the brutal drubbing administered to the tar-sands sector, the high-cost oil producer globally, haven’t helped. The overall economy is uneasy. And the migration to online shopping is unstoppable, a phenomenon that is also wreaking havoc among brick-and-mortar retailers in the US.

How tough is it in Canada’s retail land? Some salient recent examples:

Target, after only a little over two years in Canada, shuttered its 133 stores and was gone by April 2015, an episode that cost it $7 billion.

Best Buy closed 66 of its Future Shop stores in March 2015 and converted the remaining 65 to struggling Best Buy stores.

Then there’s Blacks, a Canadian camera shop chain that also sold cellphones and other things. It and its 113 stores were acquired by Canadian PE firm ReichmannHauer Capital Partners in 2007, when PE firms piled into brick-and-mortar retail. RHCP was smart enough to sell it in 2009 to telecom operator Telus, who shuttered the remaining stores in August 2015.

Sony closed all of its 14 stores in Canada in early 2015.

Mexx Canada, a Netherlands-based retailer, liquidated all its 95 stores in Canada in early 2015.

Reitmans, a Canadian retailer specializing in women’s clothing under a number of different store brands, announced in November 2014 that it would close 107 Smart Set stores.

A spate of US retailers, including Gap and Staples, have announced that they would close stores in “North America,” without specifying how many of their stores in Canada would be closed.

In terms of population, Canada is smaller than California. So this has an impact.

Nordstrom, when it decided to move into Canada, vowed to avoid a Target-like collapse. So with impeccable timing and great fanfare, it opened its first store in a veritable boom town of easy riches, a perfect launching pad for a high-end retailer. It was called an “auspicious start.” The time? September 2014, just after the price of oil had begun to collapse. The city? Calgary, Alberta, whose economy is now getting ravaged by the oil bust.

Nordstrom has since opened two more stores, one in Ottawa, and one in Vancouver, where high-end sales are expected to do well until the housing bubble deflates.

And now Sears Canada is at it again. It has hired real estate firm CBRE to find other uses for the weakest stores. That’s what Brandon Stranzl, Executive Chairman of Sears Canada, told the Globe and Mail. Sears is also making efforts in-house to whittle down the number of its stores. “Everything and anything” was on the table, he said.

“Footprint rationalization” — that’s what Tom Balkos, senior VP at CBRE Retail in Canada, called it when he confirmed that the firm was working with Sears “on numerous real estate efforts.”

Meanwhile, Sears is trying to turn around what remains of its business. It’s trying to lure Millennials with redesigned stores and snazzier styles, which everyone is trying to do, but it will be hard because Millennials don’t like to buy at dying stores. They buy online.

And it shows. Sears Canada sales have been spiraling down, plunging 50% from about C$6 billion in 2005 to just over C$3 billion in 2015. In Q3, sales dropped another 5% year-over-year to C$792 million, generating a loss of C$53 million. Stranzl didn’t comment on holiday sales.

Sears Canada began the process of “footprint rationalization” in 2013, when it closed 8 locations, including its flagship location at the Toronto Eaton Centre, and sold the store leases. Some of those locations were picked up by Nordstrom. Until the new round of closings, the list has grown to at least 27 locations. And it has laid off thousands of people, including at its Toronto headquarters.

While the locations that were closed early in the process were eagerly picked up by other retailers — including Nordstrom — that is now no longer the case; and this, according to the Globe and Mail, is “putting pressure on landlords who already have a lot of empty retail space.”

The efforts of Sears to unload some of its locations come at the nick of time, as landlords are trying to digest the wave store closings in 2015. The Globe and Mail:

For example, Sears plans to shut its Sears home store at its Carrefour de l’Estrie mall in Sherbrooke, which also has an empty Target store, sources said. Landlord Ivanhoé Cambridge wouldn’t comment, but “there are different scenarios being looked at this time” for the Target space, Ivanhoé spokesman Sébastien Théberge said.

In short, “landlords no longer have compelling new retailers to fill so much space.” And just when retail space is getting difficult to fill, Sears is expanding its “footprint rationalization” to its home and outlet stores.

“This will not be looked at as a pleasant surprise in our industry,” explained Fred Waks, CEO of landlord Trinity Development Group. “Between the closures of Future Shop and downsizings and Staples and the like, this is not a great thing.”

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You can buy a Sears home store in many small towns in the US for under $50k. Not sure if these stores were previously company owned.

polecat

Jan 26, 2016 at 4:57 pm

About 120 years ago you could buy a house from Sears and have it sent to your small town ready to build, as opposed to buying a Sears home store………..if i had my pick , i’d take the house

chris Hauser

Jan 26, 2016 at 9:39 pm

i’m ready to buy. where?

Genevieve Hawkins

Jan 31, 2016 at 7:29 pm

They are doing that in Thailand now all the rage to buy a model home and ship it to your land. They range in price from about $4000 to say $30,000. $15,000 can even get you a dollhouse looking two story. I think they still do stuff like that in the US but big money middlemen like Warren Buffett’s Clayton Homes have already swooped in to jack up the prices and only take the very highest interest payments from the very lowest subprime borrowers…

Michael

Jan 26, 2016 at 2:06 pm

When I was growing up in the midwest US Sears was the only place to shop. They sold everything, high quality and reasonable prices. Sears has very little to recommend now and quality is not necessarily good. If a target cannot make it in a specific locality, Sears would never survive.

Vespa P200E

Jan 26, 2016 at 2:19 pm

Sigh – retail is dying and once stalwart Sears and its wonderful catalogs that bring happy feelings to those who grew up with them (and dreams for those living outside US)…

But the end is nigh as even the Ikea CEO was reported to have said that people have too much stuff as age of consumerism is drawing to close and once (and still is) the driving engine of the economy. China the world’s factory is shutting down the factories in droves with jobless (and often not paid for back wages) workers becoming tinder box to unrest. Good luck to Sears Holding once heralded as savvy with its real estate holdings few years ago as more retailers and malls shutter its doors.

chris hauser

Jan 26, 2016 at 9:41 pm

yes, people have too much stuff, but it’ll wear out eventually. on the other hand, i threw an aspen t-shirt in the fire last night after 25 years. sentiment was over, at least for that t-shirt. too many holes.

Keith

Jan 27, 2016 at 9:59 pm

It is the matter of ho soon things will wear out. Now-a-days, appliances and cars can last years, if not decades. Quality has increased much, including for the “cheap” Chinese stuff. As incomes go down, people may decide to do with for much longer and not replace an item just for the sake of shininess. I think online retailing will add to this, as most people know what they want online and press click, whereas in retail stores they had the ability to make you go through maze-like aisles and dazzle you with displays and have salespeople at the ready.

CENTURION

Feb 2, 2016 at 6:04 pm

I agree with you. I grew up shopping at Sears with my mom and brother. I love the memories. The new shirts, the jeans. I have beautiful memories of these events, especially right before school, shopping for Christmas, etc.

This “internet” shopping has no life in it. No joy. No feeling. Just how “cheap” can you get it. As for consumerism? You are correct. My family own all we really need. We don’t buy much of anything. Our furniture is 10 years old and is fine? Dishes? Our 8 year old Flat screen works just fine.

We are heading into a real depression but the good news will be the fall in prices for all the junk being overproduced in all the factories. Good for us, the peasant people, but bad for factory owners.

Mark

Jan 26, 2016 at 2:31 pm

Big malls near me in Toronto and GTA (Yorkdale, Sherway Gardens, Square One, Vaughan outlet etc.) are all adding footprint, so I deeply disagree with your statement.
And as for Sears they should close 10 years ago since they have been selling crap for about same time.

Dave

Jan 26, 2016 at 5:51 pm

Mark, Yorkdale has been expanding for the past few years and continue to do so. That mall is busy all day everyday. Eaton Center is quite busy too (I don’t think they are expanding though).

Mick

Jan 26, 2016 at 6:52 pm

That’ll Change once the TSX crashes and Toronto’s financial industry along with it.

Paulo

Jan 26, 2016 at 2:43 pm

You can’t use the Canadian Target closing as an example. They trotted out their new stores with crap selection. They were nothing like their US counterparts. They were in trouble the first day they opened in Canada. The first time I walked into one in a nearby town I said, “Where’s the beef”? Then, I walked out never to return.

Sears used to be fantastic. In fact, their catalogue tradition is the model for today’s online offerings. Myself, I try and shop online whenever possible these days, but still buy Canadian. It saves me driving to town and dealing with nosy sales people. You can access reviews, compare products with a keystroke, and often receive free shipping. Even paying delivery postage is cheaper than driving downtown….plus, I can shop at midnight Sundays, if I desire.

It isn’t just the economy, except for groceries and perhaps hardware/building supplies, brick and mortar is dead in this current system. I can see a future of online, very local artisan farmer’s markets, and not too much in between.

Dave

Jan 26, 2016 at 5:53 pm

Target’s strategy was just plain stupid just like JC Penny’s when that former Apple executive became the CEO of JC Penny.

I’m not so sure about this “online is growing” meme. I don’t know of anyone who buys Sears-type merchandise online…

Dave

Jan 26, 2016 at 5:49 pm

I agree with “I’m not so sure about this “online is growing” meme. I don’t know of anyone who buys Sears-type merchandise online…”

I think a portion of sales are being shifted from ‘brick and mortar stores” to on-line but net net sales are shrinking.

Mick

Jan 27, 2016 at 2:05 am

Me either. Overall, online sales are falling too, but not with every company.
Of course, everyone points to Amazon to “prove” online is growing.
Amazon isn’t making any money and never will, because to provide the price and service they do is not profitable.
Anyone who still can’t see the economy is crashing is blind

TheDona

Jan 27, 2016 at 11:05 am

I beg to differ about who orders Sears type merchandise online. As a Boomer speaking….I online shop for everything. Bought my first flat screen TV online (Don’t remember site) in 2003. Price at Best Buy and Circuit city 4,200ish (plus tax and del. fee). Same model online was 2,100 (no tax and free ship). Hundred bucks for set up. What a surprise when it was Circuit City who delivered and set up. Still have the TV. Purchased Hoovers first bag-less, beltless, Hepa Vortex Vacuum (they were sued by Dyson over the Vortex) for $165, no tax, free ship. Prices in stores were $600 plus. Still have it. Bought Ceramic cooktop replacement, no tax, free delivery; for a 30% savings over Lowe’s and HD. Bought new Clothes Dryer online with free delivery. My Patio furniture was half off the price listed in stores. Have ordered jewelry (same maker and description) at 75% less than stores. Dewalt drill battery replacements at 50% savings. Lighting, plumbing fixtures (40% savings), commercial oversized glass blocks for remodel project (90% savings)…you name it I have purchased it online for crazy savings. So what on earth would Sears have to offer me? Or any B&M store for that matter?

Writing this makes me realize I need to start tipping my UPS driver.

Ptb

Jan 26, 2016 at 4:46 pm

I heard a couple of analyst about a week ago stating that Sears had a few months left before they not completely belly up.

…”Once upon a time there were three little pigs. One pig built a house of straw while the second pig built his house with sticks. They built their houses very quickly and then sang and danced all day because they were lazy. The third little pig worked hard all day and built his house with bricks.”…

You all know the rest…allegorical kaboom!

VegasBob

Jan 26, 2016 at 6:45 pm

I don’t know about the Canadian version, but Sears in the US has got to be the most unappealing department store in existence. It’s even more depressing than Walmart.

What I do know is that a lot of older baby boomers don’t spend much in department stores anymore. We buy food, participate in the medical rackets, and travel a little. We still eat out a bit, but that eventually gets tiresome. Besides, it costs about 60-75% less to buy stuff in the grocery store and nuke it in the microwave than it does to eat in a restaurant.

Then there are those of us who are retired but are not yet 65 and on Medicare. We’ve pretty much zeroed out our discretionary spending the last few years to pay for the absurdity known as Obamacare.

My guess is that when this Potemkin economy finally hits the brick wall, we are going to see a level of economic distress that will be even worse than 2008-2009.

polecat

Jan 26, 2016 at 9:54 pm

yeah…like 1920-34 worse!

Out of bounds in utah

Jan 26, 2016 at 10:24 pm

Glad to see someone else feels the shaft(no offense ment) of Obummer care costs. Retired nurse, not 65, and had to retire to take care of disabled wife before working and caregiving killed me. Own everything I have, but if I can’t take care of her we will go broke. Life is sweet in the good old USA. Yah let’s keep the Bankers and Corporations in charge of our political system. God help us all, as we all become the less than middle class serfs for 13 million aristocrats/ and wealthy oligarchs plus millionaires we have. It’s way past pitchfork times folks, and there should be a live first shooter game to bag them, ha, ha, as that might get their attention!! Otherwise Bend over and take it like a slave, especially if you vote for Hillary, and any republican ilk, heck her husband got rid of Glass Steigal, and Obummer just like the Pharoahs of old. Amazing the discussions here Wolf as nothing is going to change except for the worse, but good reading. Hey Wolf where is one Wealth person with a conscious. Oh right they converted to the dark masters side, and don’t want to get assassinated by the CIA like Kennedy’s! Hunker down folks, as i will be the one who runs out to lean into the Nuclear wind and glow if that happens, as i fear that is the only thing that will change things, ha ha.

NoOne

Jan 26, 2016 at 9:45 pm

Is this the real estate all those institutional investors can’t wait to jump into from the previous post?

J P Frogbottom

Jan 26, 2016 at 9:57 pm

Who even “likes” to shop anymore. Whether on-line or in a brick & motor shop, Mall etc. I, DETEST having to shop for most anything! While somewhat a necessary evil, need food, medicine, clothes so when I do find a retailer whose wares I like, at fair prices, I tend to be loyal.

Years ago it was Montgomery Ward. Similar to Sears this Chicago based retail / catalog operation had a decent store near my hometown. They were sold to an oil co. in the 1970’s I believe and their demise was a few years later. Sears also is owned by newer owners. Today, Kohl’s wins for clothes, independent shops for appliances, as for cars no loyalty except for the $$$ spent on used wheels. Not a “good” person to sell much to these days, and frankly, never had more cash to spend. Go figure…

MAS

Jan 26, 2016 at 10:29 pm

As I am someone who owns a Retail store, website and a family business in Manufacturing. I have to disagree. If anything the destruction of the Canadian Dollar is forcing people to buy locally again.

Harper gave Canadians the ” delusion ” that they we’re something better then what they were. It truly is the ” real ” Canada again lol

I also hear that American’s are buying cheap used cars from Canada as well. Who knows you may see cross border shopping going the other way again.

As far as Sears goes, they should have been gone along time ago. For that matter so should Canadian Tire that store is just complete junk.

As someone mentioned Target. This is what Target did wrong.

1) Too much too fast without thinking.

They should have opened up 1 store in each City to start with and grow from that point forward and not jump into an ” unknown ” market with all those stores.

Nordstrom is here they are doing fine. I saw Marshall’s opened up as well now, doing fine. There opening up a Fitness Center in one of the empty Zeller’s / Target stores around my area.

I believe that part of the problem with brick/mortar stores is that there are waaay to many of them. Too many box stores, too many malls, too much, too much, too much and the market is simply adapting to that over saturation. I still believe that the only thing on the Internet that makes money is PORN. Web stores do not make money. With all the free shipping and rock bottom prices and again super saturation, there is no money to be made as on line stores are continually cutting prices to compete with each other. Not to mention that it’s just a phase people are going through. On Line shopping is NO different then ” Mail Order ” shopping from 30 years ago. make me laugh. Remember Consumers Distributing mmmhhhh.. oh how people forget.

Alistair McLaughlin

Jan 27, 2016 at 1:27 pm

If you think “buying Canadian” will protect us from the ill effects of the low loonie, you are sadly misinformed. A low currency pushes up all prices eventually, even on domestically produced goods. As the prices of the imports rise, so will domestic. Not as fast maybe, but rise they will. Countries that have used currency devaluation to “boost” their economies by making exports more competitive find they must resort to repeated devaluations just to maintain the advantage. That’s the famous “J-shaped” currency chart pattern that New Zealand experienced in the 1980s, and Canada in the 1990s. (The regular steep devaluations, followed by a long flattening period before the next devaluation, form the shape of a letter ‘J’ lying on its back on the charts – thus the name.)

As for Americans buying used cars up here, that happened before too. I recall In the late 1990s in Winnipeg, it was routine to see 18 wheelers with trailers with US plates from Nebraska, Kansas, the Dakotas, etc., pull into used car lots and load up. Individual Americans also drove up to purchase used cars. Guess what that did to the price of used vehicles in Canada. We ended up paying thousands more for used cars because we had to compete with Americans who had a stronger currency and whose dealers were buying our used cars by the thousands. I bought four new vehicles in a row from 1995 to 2003, I was so disgusted with the price of used cars at the time. I bought my first used vehicle in 20 years in 2013 (2012 Altima) because prices had finally become reasonable again vs. new ones. Obviously that will not last, and that is not a good thing.

Canadians didn’t suffer from a “high loonie” in the past decade so much as we were suffering from the carry-over effects of a ridiculously cheap loonie in the 1990s and early 2000s. Reliance on a cheap currency, just as reliance on cheap interest rates, is anything but cheap in the long term. As a retailer and manufacturer, you’ll find that out eventually.

CENTURION

Feb 2, 2016 at 6:10 pm

Porn makes no money. There are soooo many free sites.

Jonathan

Jan 26, 2016 at 10:55 pm

Brick and mortar = prices usually suck, need to travel and find parking, obnoxious other customers, queues, and sale staff.

Yeah I wonder why they are dying.

Chicken

Jan 27, 2016 at 10:03 am

4.2% unemployment in my state, that’s probably about as good as can be expected and certainly nothing to scoff at?

Julian the Apostate

Jan 27, 2016 at 3:00 pm

I went to Sears as a young person basically as a default setting, and they were reliable back then. My Dad and Grandpa swore by Craftsman tools. The last thing I bought there was a pair of dress shoes. I stood around awhile and finally went over to the clerk who was busy doing something else. Finally this elderly lady came and helped me out. She was very knowledgeable about product info and at the end of the exchange and I had the shoes picked out, I asked for her business card for future purchases. She said I don’t work here anymore I’m retired but I saw you wanting to buy so I just sort of volunteered to help you out. She jutted her chin at the lazy clerk and said she couldn’t understand why the youngsters don’t get it. I was floored of course. I tried two more times to buy something there and got the idiot’s treatment both times. I won’t go back.

Alistair McLaughlin

Jan 27, 2016 at 3:28 pm

Could be that nowadays the employees are paid not much better than minimum wage, whereas years ago, they were paid a living wage. People used to support themselves on retail jobs. Now, with the Walmartization of everything, retail jobs are generally “student” positions. The kids are just killing time and earning a few spending bucks. The service is commensurate with that.

Sears is a mess with no direction regardless of the troubles in Canada.

There is an old, thriving store in downtown Houston that sits in the middle of some of the nicest and trendiest townhomes and condos in the county. The perfect location for enticing young high income workers.

But instead, the store hasn’t been updated in any way for the past 20 years. I was probably the only 6 figure income person that ever shopped there.

At my last visit there, a clerk told me that they were told there would be some renovation…but I’ll believe it when I see it.